Wednesday, November 17, 2010

ReneSola (SOL) - Elevated Vol in Chinese Solar Company

SOL is trading $9.25, down 5.8% with IV30™ up another 5.7%. The LIVEVOL™ Pro Summary is below.


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SOL is a manufacturer of solar wafers and producer of solar power products based in China.

I found this stock using a real-time custom scan. This one hunts for high vols.

Custom Scan Details
Stock Price >= $7 and <= $70
IV30™ - HV20™ >= 10
HV180™ - IV30™ <= -8
Average Option Volume >= 1,200
Industry != Bio-tech
Days After Earnings >=10 and <=60

The goal with this scan is to identify short-term implied vol (IV30™) that is elevated both to the recent stock movement (HV20™) and the long term trend in stock movement (HV180™). I'm also looking for a reasonable amount of liquidity in the options (thus the minimum average option volume), want to avoid bio-techs (and their crazy vol) and make sure I'm not selling elevated IV30™ simply because earnings are approaching.

The Charts Tab is included (below). The top portion is the stock price, the bottom is the vol (IV30™ - red vs HV20™ - blue vs HV180™ - pink). The yellow shaded area at the very bottom is the IV30™ vs. the HV20™ vol difference.

We can see:
IV30™: ~81.68
HV20™: 63.89
HV180™: 71.07

So, IV30™ is elevated relative to the short term and long term realized movement of the stock. An added bonus can be seen in the Skew Tab below.

What's the hotness here is that the ATM strike is elevated (per chart above) and is elevated per the surrounding strikes. The Dec 9 line is priced at ~83 vol. On the other hand, the Dec 7.5 puts are priced at ~75 vol and the Dec 10 calls are priced at ~81 vol.

Let's look to the Options Tab (below).

Possible Trades to Analyze
1. Vol is elevated, though the stock looks like the stock might decide to go back down to $3. That's one ugly stock chart...
Sell the Dec 9 straddle @ $1.75 or ~ 82 vol.

2. Do #1, but cover with a Dec 7.5/10 strangle for $0.80, or a total $0.95 credit. This sells the elevated vol and buys the "cheaper" wings (see skew chart). It sells 82 vol and purchases ~78 vol. The risk is to the downside, as the upside has a max loss of $0.05. I've included a PnL chart of this strategy below.

3. Do #1, and buy just one side to cover (i.e. buy a call or put but leave the other side naked).

NB: This is a Chinee solar stock, so ya know, there's some risk to being naked short options here.  The 52 wk. range for this stock is [$3.65, $15.34]. That's pretty wide. Also note that the Dec 13 calls are bid, so upside risk is reflected in the options market.

This is trade analysis, not a recommendation.

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